Emerson Stewart benefits from OTOC acquisition

Emerson Stewart Group
’s wholly owned subsidiary, OTOC Group, had been awarded a contract variation in relation to civil works that it is completing at Rio Tinto’s Cape Lambert project.

Management said the extension was valued at $10.7 million and OTOC had now secured work in hand to a value of $105 million for 2011-12. All of this work is expected to be completed before the end of 2011-12.

Emerson Stewart acquired OTOC less than six months ago with the expectation that it would boost the company’s earnings before interest and tax in 2011-12 to more than $9 million. This development, together with new contracts worth a combined value of about $37 million that were awarded in September, suggests the company is on track to meet its forecasts.

The OTOC acquisition was virtually a company-making transaction for Emerson Stewart. The fact that the group only generated revenue of $33.3 million in 2010-11 highlights the impact that OTOC is likely to have in 2011-12.

Despite recent market volatility, Emerson Stewart’s share price has continued to trade in the vicinity of 20¢, and it hit a six-month high of 25¢ in mid-September. The award of new contracts is the most likely near-term share price catalyst, while the potential for a much improved interim result to be announced in February 2012 could trigger a share price re-rating for a company that tends to fly under the radar.